string * and string& differ in a couple of ways. First of all, the pointer points to the address location of the data. The reference points to the data. If you had the following function:
int foo(string *param1);
You would have to check in the function declaration to make sure that param1 pointed to a valid location. Comparatively:
int foo(string ¶m1);
Here, it is the caller's responsibility to make sure the pointed to data is valid. You can't pass a "NULL" value, for example, int he second function above.
With regards to your second question, about the method return values being a reference, consider the following three functions:
string &foo();
string *foo();
string foo();
In the first case, you would be returning a reference to the data. If your function declaration looked like this:
string &foo()
{
string localString = "Hello!";
return localString;
}
You would probably get some compiler errors, since you are returning a reference to a string that was initialized in the stack for that function. On the function return, that data location is no longer valid. Typically, you would want to return a reference to a class member or something like that.
The second function above returns a pointer in actual memory, so it would stay the same. You would have to check for NULL-pointers, though.
Finally, in the third case, the data returned would be copied into the return value for the caller. So if your function was like this:
string foo()
{
string localString = "Hello!";
return localString;
}
You'd be okay, since the string "Hello" would be copied into the return value for that function, accessible in the caller's memory space.